Audit Facts and Tips: Who Gets Audited and What Happens
Tax season is over; your clients have filed their returns and paid the balances or received their refunds. So they are in the clear with no audit worries, right? No, that's not necessarily true. Once the IRS receives tax returns, its computer system compares the information reported with the information that the payers, such as employers and financial institutions, provided. This process is complicated and takes time. The IRS may contact a taxpayer as early as 12 months from the filing date, or as late as three years from the filing date.
The IRS reported that it audited almost 1.4 million individual returns in 2008. That's about 1 out of every 99 returns. The myth that only taxpayers with large taxable incomes are audited is just that, a myth. In fact, about 58% of IRS audits affected individuals with incomes less than $50,000 in 2007, and audits of taxpayers claiming the earned income tax credit made up more than 19% of the 2008 individual audits performed. The number of audits increased 12% from 1999 to 2008. In 2008, the IRS performed 1,081,152 correspondence audits and 310,429 field audits.
If your client receives a letter in the mail, you have some options as to how you help him respond.
No matter the response, it's important that it's done by the deadline on the letter, or the consequences can become more serious. Ignore the letters, and your client could end up with an IRS lien or levy.
The IRS reported that it audited almost 1.4 million individual returns in 2008. That's about 1 out of every 99 returns. The myth that only taxpayers with large taxable incomes are audited is just that, a myth. In fact, about 58% of IRS audits affected individuals with incomes less than $50,000 in 2007, and audits of taxpayers claiming the earned income tax credit made up more than 19% of the 2008 individual audits performed. The number of audits increased 12% from 1999 to 2008. In 2008, the IRS performed 1,081,152 correspondence audits and 310,429 field audits.
If your client receives a letter in the mail, you have some options as to how you help him respond.
- If your client agrees with the changes the IRS made, then they can
- "Check the box" reflecting that fact, and
- Pay the taxes along with any penalty and interest shown on the letter.
- If your client disagrees with the letter, either partially or in full, then they must
- Prepare a signed statement explaining what they disagree with.
- Gather and copy all documents that support this statement.
- If your client partially disagrees, they should
- Pay the tax on the portion of the proposed changes with which they agree.
- If your client can't afford to pay the amount that owed, you can help them complete and submit Form 9465, Installment Agreement Request, with their response. This allows the client to set up a payment plan with the IRS.
- Pay the tax on the portion of the proposed changes with which they agree.
No matter the response, it's important that it's done by the deadline on the letter, or the consequences can become more serious. Ignore the letters, and your client could end up with an IRS lien or levy.